Homework Answers
a.
Weight for Minimum volatility Portfolio:
where,
= Correlation between Asset-1 and Asset-2
= Standard deviation
b.
Optimal portfolio has Maximum Sharpe Ratio. We can compute the weights of optimal portfolio or Maximum sharpe ratio portfolio with following equation:
![(ri - rf) * o - (r2 - rf) * P1,2 * 01 * 02 (ri - rp) * o£ + (r2 - rp) * o - [(r1 - rp) +(r2 - rp)]**p1,2 * 01 * 02](http://img.homeworklib.com/questions/b0dffa90-7a49-11ea-af55-e1ce738bc207.png?x-oss-process=image/resize,w_560)
where,
r1 = Return of Asset-1
r2 = Return of Asset -2
rf = risk free return
= Correlation between Asset-1 and Asset-2
= Standard deviation
And,
Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.
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